Rush to Get Deals Done in 2012 – What Does that Mean for 2013?

The deal community – bankers, lawyers and private equity firms are extremely busy trying to get deals done prior to year end. This flurry of activity is driven primarily by sellers looking to avoid adverse tax consequences expected to come in 2013. Considering the volume of deals expected to close by year end deal makers are now looking to 2013 and wondering if there will be a let down.

Clearsight anticipates middle market M&A and Capital Raising activity to continue to accelerate in 2013. There are several reasons driving this expectation:

Cash available for investment and M&A continues to be at or near all-time highs

A combination of strategic acquirers continuing to benefit from the cost cutting measures taken during the recession and the need for new avenues for growth are top of mind for boards and executive teams. In many instances, M&A is the most critical component of achieving future growth objectives

Private Equity firms continue to be flush with cash and generally speaking have not put enough capital to work during 2012 to makeup for the lack of investment activity in 2009-2011.

Capital is Cheap

With the cost of debt capital at or near an all time low, the ability to finance transactions is extremely high on a relative basis.

Cash sitting on the balance sheet of large strategics is earning next to nothing in the lowest interest rate environment many of us will ever see in our lifetime.

Sellers continue to evaluate their alternatives

While tax rates are likely to increase, many founder-led businesses still recognize the opportunity to capitalize on the recovery their businesses have made, and continue to make a post-recession comeback. While values are not at 2007 levels, they are above historic norms and business owners appreciate the opportunity to take advantage of this in conjunction with the uncertainty surrounding another potential downturn in the economy.

While many shareholders understand the lack of good investment opportunities outside of their business, they appreciate the need for personal net worth diversification and the burgeoning opportunities for growth equity recapitalizations.

At Clearsight, we have experienced a 50% increase in pitch activity in Q4 2012 vs Q4 2011 and we expect the market to be very active starting in Q1 2013. Since dealmakers have been so busy trying to get deals done in 2012 there has been a dearth of processes launched over the past couple of months and a backlog of deals that will go to market early in the new year. We are excited by the prospects for 2013 and believe overall activity will continue to accelerate.